News and commentary about road pricing across the globe. Tolls, congestion charging, distance based charging, road user charging. Public policy, economics, technology and more. If Google brought you here, look down the right sidebar for references.

Wednesday, 31 October 2012

This is what has been proposed by the Institute of Economic Affairs (IEA) in a report authored by Dr Oliver Knipping, president of the Institute for Free Enterprise (a German free-market think tank) and Dr Richard Wellings, deputy editorial director at the IEA and director of the IEA’s transport unit.

It is a radical vision of a UK road system owned and operated by private entities ranging from larger companies that may own sets of highways and regional networks, to smaller rural or urban co-operatives, all offering different pricing approaches ranging from distance to single point tolling, to access passes, to free routes (paid for by property owners). A very decentralised network, which bears little resemblance to the current central and local government controlled system, and is even more dynamic than the energy and telecommunications utility sectors that it is often (negatively) compared with.

The full report is available here. It is well worth a read, not only for those interested in UK transport policy, but those interested in highways reform worldwide. Why? Because it sweeps away many of the assumptions made about the status quo seen in almost every country, and taps a handful of examples of private sector participation in the roads sector that are useful.

The case is for private ownership of the UK road network. Knipping and Wellings make a compelling case that the status quo is sub-optimal, given that congestion costs £20 billion per annum and the network as it stands costs 2,000 deaths and 25,000 serious injuries a year. They also argue that £9.5 billion worth of spending on roads is poorly allocated because it reflects political rather than user preferences. Certainly, it seems odd that new capital projects can proceed when increasing proportions of the network are poorly maintained and shabby (with signage, lining and road surfaces visibly neglected).

They argue these outcomes arise from the inherent incentives around the current governance of the highways system, and believe that commercial and market oriented incentives would produce superior results. one issue cited is that UK transport policy being strongly biased towards expenditure on public transport rather than roads, as is reflected in the deferral of road projects with higher benefit/cost ratio appraisals than approved public transport projects. Furthermore, local authorities have poor incentives to improve network maintenance, in part because they do not benefit from revenue raised from road use (although they do from parking) and the planning system has largely hindered development of the highway network, because it magnifies the views of opponents, compared to those who benefit from the positive externalities of highways.

Certainly the process of getting highways built in the UK is glacial, and due to enormous amounts of consultation and the need for hypersensitivity about environmental and social impacts. Knipping and Wellings believe that private companies needing to respect private property rights as the first principle, would be better placed to compensate landowners and take into account community views being driven by the profit motive, rather than to fit criteria determined by government.

The report notes historic underinvestment in new capital in the roads sector, but highlights the Humber Bridge as an example of poor investment - it being a toll bridge that has had part of its debt written off because the benefits in promoting growth did not eventuate.

What about road pricing?

On the topic of this blog, road pricing, the key point the authors make is that whilst widespread road pricing would be beneficial, this "would not in itself solve the fundamental problems associated with government ownership of roads" because the two key benefits (better use of existing capacity and better direction of future investment decisions) are undermined by pricing being set by politically determined rather than market oriented criteria.

The authors don't proscribe a road pricing approach per se, but see it as being up to the privatised road owners. They say that no single pricing mechanism would exist under a
privatised road structure, it could be highly diverse and dynamic, and should
be. The full range of options could exist, from time/distance/place based charging, to tolling with manual toll booths on quieter rural routes, to access passes (like vignettes) for networks. In all cases, it would be about comparing revenues, to yield, to asset management and the transaction costs of different charging options.

The authors claims prices would be market set, with the key being competition from alternatives. The obvious alternatives of mode and not travelling are part of this, but also what matters is how privatisation is implemented to encourage competition between roads.

How could privatisation promote competition and so pressure on road prices?

The authors propose that:

"a denationalisation of the road industry should aim
initially at creating smaller-sized lots of road networks than privatising the state monopoly in a single
chunk, which would create a dominant position in the road market. Smaller sizes
– whether area-based or route-based – would facilitate consolidation or
deconsolidation moves in the road industry and shape something like an
efficient market structure, save for the unavoidable inefficiencies and
distortions that had been created by previous state monopoly."

In other words, the Highways Agency might be broken up into multiple regional or route based entities, and perhaps local authority networks could stand alone on their own right, or be broken up as well. Whatever would happen ends up being dynamic, and would see a progressive transformation (probably some consolidation for economies of scale, subject to competition regulation concerns) to see a range of road companies emerging.

The big question is how competitive they may be. Area based road owners would be less likely to offer choices for specific routes (and of course for local trips, such choices may be unlikely to exist), whereas corridor based ones could do. However, at present there is no competition, and the government levies 6p per mile on the average car doing an average trip, through fuel tax.

For local roads, models are suggested such as the Swedish Road Association model which effectively creates co-operatives for rural roads, to property owners operating in their own co-operatives for urban local roads. In addition, in many cases there are rights of way that exist over roads, based on historic property development and ownership. Such rights of access are assumed to remain, but road owners that wanted to override them could do so with the consent of the rights' owners, who may be presumed to want compensation for the loss of the rights.

What about externalities?

A key point is that better pricing resulting from market related decisions should see lower congestion and consequential emissions, but beyond that private owners would have to negotiate with
property owners and communities regarding any new construction, and would be
well incentivised to manage negative externalities. They also respond that there are positive externalities to the presence
of roads that are often ignored, such as the network effects of a road
providing universal access. Fundamentally, it is thought that a property rights approach combined with more efficient pricing could result in better overall results for the environment, even though road owners will want to incentivise the greatest efficient use of their networks.

How would road taxes be reformed?

The authors have a radical proposal. Once all roads are privatised, they would empower the new owners to price road users as they saw fit, but abolish Vehicle Excise Duty (the tax on ownership) and cut Fuel Excise Duty by three-quarters from 59p/l to 15p/l. The new owners would be paying for the roads from road user charges, so government spending on roads would cease. However, this cut in motoring taxes would reduce revenue by far more than what is spent on roads. The rest would be made up by the predicted windfall of £150 billion from selling the network, which could be used to cut public debt (and resulting interest) or simply to offset the loss of revenue until the economic benefits of better pricing and a more dynamic highways sector flowed into the wider economy. It is clear that this proposal implies government spending restraint more widely. One of the longer term effects is seen to be that subsidies for rail can be phased out, primarily because if roads are priced efficiently, the case for subsidising rail is difficult to sustain on pure economic efficiency grounds.

Conclusion

This is a radical set of proposals to shift the UK highway sector into the private sector, well beyond the commonly referred to "public-private partnerships" and beyond what the Government has proposed (which appears to be encouraging more private participation, not abandoning public provision).

The most interesting and useful dimensions to the report are the economics, and considering that to release the full potential of road pricing, it needs to be dynamic and to be supplying market signals not only to users, but to providers of roads. The report also intelligently responds to many of the concerns raised by those who would instinctively oppose privatising roads. I find it refreshing, and a very helpful contribution to the debate, although perhaps what was needed a little more of was the right transition path to take to generate some of the benefits and build confidence in a private model. The other issue is that there is discussion of options for privatisation that effectively mean granting ownership to new user or property ownership co-operatives, which of course would not generate any money for the state or local authorities. It is highly unlikely politicians will swallow an end to so much revenue so quickly unless they could sell the roads. In the current climate, it is also highly unlikely that sufficient investors would be found to buy the whole network.

Yet, the potential is there for the Highways Agency's network, which could be privatised, but would need to be accompanied by a cut in some motoring taxation (e.g. cutting Vehicle Excise Duty to an administrative fee, or reducing fuel excise across the board) to enable the new owners to toll with less public opposition.

For those interested in road pricing, it does help to change the terms of the debate. For over a decade, transport economists and public officials have been trying to convince the public, the media and politicians of the merits of introducing road pricing in the UK. Perhaps the key is to remove such decisions from political/bureaucratic structures and shift them to the private sector. Then the debate will be only slightly less about what people pay, but will also be a little more about what they get for their money.

Footnote

The Institute of Economic Affairs (IEA) describes itself as:

the UK's original free-market think-tank, founded in 1955. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

Monday, 29 October 2012

Some UK newspapers have a history of vocal opposition to any suggestion of road pricing, so what appears to have happened in the last 24 hours needs some explanation.

The report comes from a senior Treasury official apparently saying that one of the options considered for reforming vehicle excise duty (VED - an annual vehicle licencing fee commonly but misleadingly called "road tax" as none of the money collected is hypothecated for roads) would be to charge motorists much less in VED, but charge a higher rate for permission to access the motorways and other major trunk roads.

In short, it would replicate the vignette system which applies in eight countries in Europe and is soon to be introduced in Belgium. Those systems mean that motorists who wish to use the motorways/major highways need to buy a vignette for access to those roads, but those who choose not to, can use the rest of the network for no more. Most countries with such systems offer options to buy 1 year, 1 month or 1 week for those who may not regularly use the network.

The reason for it is primarily to allow for foreigners to pay a share of the costs of using those network, a relatively minor issue for the UK, which has less than 2% of traffic carried by foreign vehicles.

The Daily Mail produced the headline claiming that there would be a "two-tier" road system with the rich paying to use motorways, and the poor left to using other roads. It claimed "spy cameras" would catch those who don't pay, which is just going to be ANPR cameras, such as those used to enforce the London congestion charge, speed cameras and service station fraud.

The AA rightfully said it would encourage diversion onto non-arterial routes, and that would be correct. It makes little sense to charge the motorways and trunk roads more, largely because the marginal infrastructure costs of using these is lower than using local roads, and the environmental and congestion impacts lower as well (as it does not expose pedestrians or residential buildings to as much pollution).

Another option cited in the article would be a one-off tax on new vehicles, which would be worse as this would simply delay new vehicle purchases, meaning the vehicle fleet would get older over time. This would mean more fuel consumption, more pollution and less safe vehicles than would otherwise be the case.

Oddly, the Daily Mail also reports that the one option that would make a positive difference, has been excluded:

A proposal to link the amount motorists pay in road tax to how far they drive on motorways, or their use at peak times, has been ruled out.

The RAC Foundation published an interesting report by Brian Wadsworth of the "Roads Ahead Group" proposing such reform. He suggested that once people pay VED, they could earn discount points if they opt into a system that means if they do not drive at peak times on certain congested roads, they earn a credit towards their VED. It means at one extreme, the rural driver who never goes on congested city or arterial roads would earn a substantial discount on the following year's VED, whilst at the other end, the driver who frequently drives at the peaks on busy roads, loses all discount points and that is that. That driver just pays VED - as now. The system would require technology on board vehicles to measure time or distance spent in peak zones to calculate the discount, which wouldn't be dissimilar to road pricing.

Of course, this doesn't fix the long run revenue issue, which for VED is the fact it is an ownership tax that is based on CO2 emissions. Revenue from such a tax is unlikely to grow as people get ever more efficient vehicles.

What it does do, is create a new level of trust with motorists that government measures regarding tax are not always punitive, and helps to derisk the future introduction of road pricing to replace existing taxes, although I remain unconvinced that this is the right way to do it. It is fuel tax that is the real issue for long run revenues.

Yet the reports in the Daily Mail and Daily Telegraph do not enlighten. What they do display is the ease by which motorists can be angered and upset by ill thought out ideas, because there is no trust in how governments set, collect and spend taxes that are levied directly or indirectly on vehicle ownership and use. Until that is addressed, any reforms will be a political liability and unlikely to be implemented.

Conclusion

I doubt the UK government will introduce a vignette system for UK trunk roads, as there is little discernible benefit in doing so, and plenty of negative impacts from the idea. Too many would divert from motorways and trunk roads to local roads, creating congestion and additional pollution, and it would not adderss the fundamental revenue issues.

Given the unwillingness to directly charge for road use on existing roads, it is fair to say that the most useful thing that may come under this government is some sort of hypothecation of existing motoring taxes and reform of the highways sector to allow for private ownership and commercial operation of the highways networks.

A few have been publishing interesting ideas about how to do this, including myself. I will write about these shortly, but the key point is that until the way roads are governed and managed, the way spending on roads is determined and allocated and the incentives on road providers are radically altered, there is no way that tinkering with the existing second-best pricing tools will make a meaningful difference to the experience of road users.

Monday, 22 October 2012

Last year, the government in Denmark changed, with the election of a leftwing coalition which included in its coalition agreement a commitment to introducing congestion pricing in Copenhagen. I wrote optimistically at that point, as it appeared that the real debate was not about "if" it should be introduced, but "how".

Original cordon concept for Copenhagen congestion charging

Yet no one should underestimate the politics around congestion charging. The real push for charging in Denmark has been from the Socialist People's Party (a green/socialist party) which had it as a core part of its platform to reduce traffic and emissions in Copenhagen, and to boost walking, cycling and public transport as an alternative. The party leader pushed in the elections that he would slash public transport fares with the revenues from the charge, which gained support among non-motorists in Copenhagen. However, the SPP has only 16 out of the 179 seats in the Danish Parliament, compared to the senior partner, the Social Democrats (a centre-left party) which has 44 seats, and is significantly more sensitive to public opinion.

The core problem is that the modelling of future revenues proved disappointing. According to the Copenhagen Post, the revenues were estimated to be less than half of the DKr.2 billion (US$352 million) originally forecast, dashing hopes that congestion charging could fund a major cut in fares and major capital works on the scale envisaged.

Opposition to the concept was strong among business leaders, and the opposition Venstre party (free market liberals - which is ironic given the attribution by some that congestion pricing is a market oriented approach), but it was the opposition from local leftwing politicians, aligned to the two main parties in government, that made it increasingly embarrassing for the central government.

So the result is that congestion charging has been shelved, for now. The government announced it is spending DKr 1 billion (US$176 million) on improving public transport and reducing fares in February 2012, and created a Congestion Commission to look at long term solutions to addressing congestion and air pollution in the city.

Yet that Commission is having problems of its own. It cannot get agreement among its 24 members about potential solutions. It is meant to report on recommendations by 1 January 2012, but the Commission is deeply divided between business representatives (opposing charging) and environmentalists (supporting it).

A Copenhagen Post article claims the government is optimistic an outcome will be reached, but the Venstre Party believes it is too divided.

I previouslywrote about how I thought Copenhagen should go about it, describing the main proposal for a cordon around central Copenhagen. For it should not simply consider the single cordon, it should not just consider a cordon ala London, but consider how similar type systems exist in Italy and Singapore.

The key is really to not be wedded to a single concept, to consider experiences elsewhere and to develop options that not only mean pricing is more discreetly targeted at congestion, but that the net revenues are used for some combination of new capital investment in the transport network of the charged zone and/or tax relief for businesses in the zone.

It is notable already that there is support by some other political parties for congestion pricing in Copenhagen, but not the cordon solution previously described. The Radical Left party (Radikale Venstre - socially liberal centrist party) is also part of the coalition, with 17 seats. It is glad the concept has been scrapped, but it support GPS based distance based road pricing. The party's transport spokesman, Andreas Steenberg, claims the opposition Venstre and Conservative People's Parties share that view.

Bearing in mind that Denmark is also pursuing GPS based road pricing for heavy vehicles (more on that soon), this is consistent with such an approach.

Conclusion

It appears unlikely that Copenhagen will get congestion charging in the near future, partly because only one of parties in government is still pushing it, but also because the concept being supported is insufficiently flexible or targeted enough to avoid criticism from businesses that the impact will be blunt.

My guess is that the Congestion Commission will agree that pricing could reduce congestion and emissions, but disagree about how it should be implemented and what it should look like. I suspect the cordon option, unless radically altered, will be gone, but that talk of GPS based pricing will remain. If so, whilst GPS based distance charging in an urban environment would have many advantages, one of them is not cost and another is not rapid deployment.

It can be sure that if there is a lot of support in Denmark for the broad idea of charging to manage traffic demand, then the GPS option will remain for some time. The political advantage of that is that it can always be said to be too risky to do at present, but that offers little for relieving traffic congestion in Copenhagen.

Friday, 19 October 2012

According to the Vancouver Sun, pricing existing roads in Vancouver has moved up the agenda a little, as a panel of experts (including well known figures such as Ed Regan and Jack Opiola) was invited to talk to Metro Vancouver mayors about options for road pricing.

Previously I have written:

- The C.D Howe Institute proposed converting HOV lanes in the city to HOT lanes which would raise C$81 million per annum, and offer a new congestion bypassing option on certain routes;

Now it seems the mayors of the local authorities are open minded about how to move forward. The article says that a number of points were made:

- Large scale options include zonal fees or distance based charging;

- All road pricing options mean a shift from general taxpayers to users (notable given the Mayors are to consider shortly whether to increase a long standing property tax to fund some transport projects);

- Jack Opiola suggested Vancouver had similarities to Stockholm, but might choose to introduce a system similar to Siena in Italy, which has multiple zones. He also said that people perceive driving should be free regardless of the cost to maintain the infrastructure and that the city needs to define the costs it wants to recover to help the public understand;

- Ed Regan suggested that whatever is done needs to generate value for those paying elsewhere, such as reducing fuel tax given that fuel tax revenues are declining due to vehicle efficiency. He also suggested that the broader the charge, the fairer it will seem to be.

"...... we're not just tolling bridges, we're looking at pricing throughout the region. User pay."

Meanwhile, "BC Chamber of Commerce President John Winter says they and the Vancouver Board of Trade want mayors to approve the temporary property tax increase" although they admit it is a stopgap approach to funding transport.

Of course the real tradeoff is that to get the most revenue and greatest equity, you need the longest time and cost to implement the most radical option (time, distance, location based charging), in the meantime options such as charging only bridges, are feasible, but create distortions.

Vancouver has a reputation among public transport enthusiasts for being a city that has adopted sustainable solutions for urban mobility. Whether or not that is true, the introduction of road pricing could have a profound effect not just on traffic, but on urban transport more generally and the urban form of the city.

I can only hope that Vancouver continues to get expert advice and has a sober look at options, and does so with an open mind to not just transplant what has been done elsewhere.

Thursday, 18 October 2012

Chicago may get congestion pricing, so says Illinois media. However, it isn't quite what most of us in the wider tolling/highways sector know as congestion pricing. The proposals released by the Chicago Metropolitan Agency for Planning (CMAP) are NOT to charge vehicles for using an existing untolled road or lane. There will be no cordon, area, zonal or distance based charge on existing roads. So there wont be the kind of behaviour change or modal shift seen in Singapore, London or Stockholm.

What is proposed are two new roads to be tolled, with pricing that will vary by time of day and new HOT lanes to be constructed on existing corridors. The proposal is for new capacity which will be tolled.

The new capacity will obviously mean significant travel time savings (and commensurate fuel/vehicle operating cost savings) for those using that capacity. The shift of those users from existing capacity will deliver incremental savings to those remaining on the existing network.

However, what CMAP is proposing is tolling the new capacity, which creates two benefits. The obvious one is recovery of at least part of the capital cost of the new capacity. However, the more significant benefit is ensuring the new capacity is sustainable. I don't mean to use the word as a cliche, but rather than by having peak pricing, the new roads and the HOT lanes in particular, will be able to be managed to always have a minimum standard of free flow conditions with pricing managing demand.

Critics of any new highway capacity frequently claim that it induces demand so that it ends up being filled up and congested, much as the situation before it was built. Pricing that capacity manages this so that demand can be effectively capped by pricing off users for whom the marginal cost of the toll outweighs the marginal benefit of travelling on that road at that time.

In short, it is a way of ensuring new capacity, where and when it can be funded by the users, is optimally utilised.

It's worth noting that it appears CMAP has published findings and proposals largely to gauge reaction to them. The peak surcharge on tolled routes (i.e. not including the HOT lane only routes, where the alternative is free) would range from 25-83%, with a price surcharge of between US$0.05-US$0.09 per mile.

A map of the proposed network consists of:

Illinois Route 53 north extension and Illinois Route 120 bypass: A 12.5 mile long four lane parkway, with an operating speed limit of 45mph and all lanes priced, with peak pricing to maintain steady traffic flows.

Elgin-O'Hare West Bypass: Widening (from four to eight lanes) and extending the existing Elgin-O'Hare Expressway to a new north-south expressway at the western edge of O'Hare to connect I-90 and I-294. Modelling was on the basis of tollling all lanes including peak pricing.

I-90 Addams Tollway widening: A new lane to be added in each direction on the Addams Tollway from I-294 to Rockford, with those lanes being HOT lanes with peak pricing.

Travel time savings were expected to range from 11-25 minutes in the tolled lanes, and 4-9 minutes in the untolled lanes (with other time savings for the new corridors more related to a better route than pricing)

CMAP advocates the new "congestion pricing" (which is effectively tolls on new capacity with peak pricing, not congestion pricing as it is known elsewhere) as offering the typical benefits of tolled lanes, of new capacity and a choice of road users to pay for free flow conditions or to remain in congested traffic (which will be less congested given the impact of those making the choice to pay). It indicates that time savings in express lanes could be between 31% and 66% of existing travel times. In addition, it sees the express lanes as enhancing the attractiveness of bus services, as they effectively create new corridors for bus rapid transit services.

"The median income of express lane users would be 13 to 19 percent higher than users of the general purpose lanes -- somewhat higher, but not dramatically so" Astonishing that this issue comes up, given Americans are comfortable with wealthier people being more able to afford taxis, cars and first class air travel. Bear in mind the lanes are optional.

However, it floats some more ideas to address perceived distributional issues:

Policies should be adopted to address equity concerns. For example, transit vehicles could use express lanes for free, and surplus revenues from congestion pricing could be used to fund transit service. In another approach, drivers in the region could be given a base number of "lifeline" travel credits for free travel, then they would only pay for travel above that level. Another possible alternative is that lower-income drivers could be charged a discounted toll rate or be allowed to deduct tolls from congestion pricing on their state income taxes.

Free use by buses is fairly obvious, but having travel credits for free travel will destroy their usefulness in the initial period, as everyone uses their "free" credits early on. Having a low income discount is also fraught with problems, although deducting tolls from income taxes would be an interesting form of tax recycling. Yet none of this is necessarily. New toll routes or toll lanes don't disadvantage anyone, but offer a new opportunity.

Other concerns such as "traffic spillover" and "engineering feasibility" are manageable. If all such lanes are new capacity, the traffic effect would be generally positive, but engineering matters can be complex to allow for convenient access/egress from such lanes.

The "public acceptance" page indicates a majority of those surveyed are in favour of the option of tolled lanes that guarantee free flowing traffic conditions. Hopefully this will prove to be the case to encourage the proposal to proceed further.

Media Reports

Media coverage has been fairly open minded:

- Huffington Post Chicago has a short factual report and has video from ABC7 and strangely the BBC (talking about tolling in the UK), but also has an online survey of attitudes to toll lanes.

- Chicagoist is open minded about it, and claims "This is not a new idea. Mayor Rahm Emanuel previously proposed a downtown parking surcharge to help fund transit initiatives like a new Cermak / McCormick Place El stop and bus rapid transit routes along Jeffery, Western and Ashland avenues." Although parking surcharges bear little resemblance to toll lanes.

- Chicago Magazine titled its report "Why Congestion Pricing Works, and Why People Don’t Like It", gets the basic economics right and quotes the success of Singapore, but notes people don't always like others paying to get past a traffic jam. It has an interesting conclusion that helps people understand the tradeoffs being made, and notes that whatever people say, users of the untolled lanes get a benefit:

Let's assume you save 15 minutes on Mannheim. That's one-quarter hour, at $3.41. If you make $20 an hour, and value your commute at $10 an hour, it's not worth paying $3.41. It's close to worth it on I-55. But if you make $40 an hour, it's (theoretically) worth it. (I look forward to traffic reporters trying to integrate variable congestion pricing into their reports: "40 minutes to the Dan Ryan from 355 in the free lanes, 25 in the express lanes, which are running at eleven cents a mile right now.")

Is it unfair ? Sort of—the more you make, the more affordable it is, which is frustrating if you don't make much. But it also shaves time off the free lanes, which building more roads has never done.

- Radio Station WBEZ unsurprisingly mentioned London, even though there is little in common between London Congestion Charging and the Chicago proposal.

- ABC gave a fair report but indicated it "may be a tough sell to many who are weary of the higher cost of everything, including the most recent toll hikes" and that "Many public hearings ahead will determine the direction of travel". It noted that just building new untolled lanes is likely to not be sustainable.

It will be interesting to see if there is any significant opposition, and if not, if Chicago will start to advance these proposals. Bear in mind Chicago already has toll roads in the form of the Illinois Tollway, and the privately owned Chicago Skyway. If you combine the proposals for new roads and HOT lanes with these, you get the map I have hastily pulled together below. Red is for toll roads, both existing and proposed, yellow is for untolled roads with HOT lanes (one existing toll road, the I-90 Adams tollway is proposed to have a toll premium lane added, so that it costs yet more to use it compared to the existing toll road). (Note the state line immediately to the east for Indiana, as the Indiana Toll Road connects to the Chicago Skyway).

Toll roads and lanes in Chicago existing and proposed

If the proposals come to pass it will mean a great deal of major corridors in Chicago will have tolls, which starts to look like some form of network tolling.

As a footnote, perhaps one of the more interesting pieces of work on the website is a summary of "congestion pricing" across the United States. These examples include toll roads with peak pricing and HOT lanes, all with links to the websites about the current and planned projects. It's not a bad summary of such pricing in the US (there is only one example I know of HOT lanes outside the US, being in Israel).

The consultation questionnaires ask about attitudes to road charging across a range of dimensions, such as congestion pricing, heavy goods vehicle charging, charging for air pollution, climate change and noise, whether there should be an emphasis on distance based charging, consideration of what taxes might be reduced if road charging is introduced. There are questions about whether there should be a mandatory single European tolling service available for full interoperability, and what money received from road charging should be spent on (e.g. roads, cutting other taxes, "sustainable transport", a new EU fund for transport or cutting budget deficits generally). There are specific questions about personal experiences (e.g. how much would you need to be charged at peak times to change mode of travel, have you experienced discriminatory practices with road user charging in different EU Member States). It also asks about perceptions regarding standards of maintenance in one's home country and across the EU. Another question is whether there should be a shift away from manual tolls to fully electronic free flow tolling, and if that should be mandatory.

It is a questionnaire obviously and logically targeted at European citizens and residents, and should be responded to by both commercial and private road users.

However, it is far ahead of what individual countries elsewhere do in this sector, as it presumes those answering are intelligent and can understand basic concepts of charging and funding. It should be, at least, an intellectual starting point for many policy thinkers.

Users should pay at least the marginal costs of the wear and tear of the infrastructure and the main external costs (i.e. noise, pollution and congestion), while for other costs, such as construction costs, the choice of options should be kept wider.

This justifies EU taxpayer contributions to capital expenditure on major highway projects through structural funds. However, it is an explicit statement that road infrastructure and externality costs should be charged for directly.

It is generally accepted that the cost of greenhouse gas (GHG) emissions, which for road transport consist mainly of carbon dioxide (CO2), are best internalised through other tools such as fuel taxes.

Fuel taxes are seen as a way of internalising CO2 "costs", but not as an optimal way of recovering infrastructure costs or managing congestion.

A Commission proposal to review the Energy Taxation Directive, currently discussed in the European Council, is however proposing the clear separation of the CO2 component of fuel taxes.

What this means is that fuel taxes would be disaggregated into infrastructure charging and CO2 components (and presumably general revenue raising), which would add to transparency in discussions about reforming road charging and the partial or full replacement of fuel taxes with other charges.

The current regulatory role of the EC on road charging is confined to heavy goods vehicles:

Road charging of heavy goods vehicles (HGVs) on the TEN-T and motorway network is regulated at the EU level, while no legislative framework exists for cars, vans and motorbikes at the moment.

The consultation is, in part, seeking for views on this. The reason HGVs are regulated at present is because their movement is integral to the single European market (and avoiding distortions that mean a Member State charges foreigners more than it charges nationals). The key directives are Directive 1999/62/EC (on charging HGVs), Directive 2004/52/EC (on a European Electronic Tolling Service) and most recently a communication on explaining how the non-discrimination principle applies in the context of vignettes for cars.

Problems

One is financing infrastructure

"The Commission has estimated that 1.5 trillion euro over 20 years is the minimum investment needed to keep pace with the increase in transport demand. 500 billion euro will be needed by 2020 to complete the TEN-T network. Without these investments, Europe will progressively lose the asset of efficient transport infrastructure capable of supporting long-term, sustainable economic growth."

In times of fiscal consolidation, there is even less justification to call upon the tax payers to finance the maintenance of the transport infrastructure and therefore the network managers have no choice other than to increasingly rely on the users to pay for the it (this is called the 'user pays principle').

Other are better use of price as an instrument to improve transport efficiency, lack of harmonisation between charging systems technically, contractually and in price terms.

Another problem is the lack of transparency and the risk of discrimination in the way in which tolls and charges are fixed, updated and levied...In the field of distance-based charges, road users are generally not consulted or informed about the rationale behind yearly updates of toll levels. This creates the risk of toll chargers abusing their monopolistic position and making unjustified profits on the tolls.

The survey itself indicates that traffic congestion costs the European Union 1% of GDP per annum, and EU cities 2% per annum.

In conclusion it is hoped this questionnaire will inform policy, but I fear it will get insufficient publicity to really have enough of a sample from Member States to be meaningful. I hope I am wrong and I hope the European Commission publishes the results in due course.

So, if you are a European citizen or resident - go on and answer the questionnaire. If you are not from the EU, then you can still respond and declare your interest as being "international", and it will be given due weighting I am sure.

Disclosure of interest: I provided policy, regulatory and economic advice to the European Commission on tolling/road user charging matters from 2009-2011.

According to the Herald Sun newspaper, the Airport Link toll road has been a success by some measures. It is carrying an average of 81,500 vehicles a day, with traffic on some parallel routes dropping by up to a third, effectively eliminating congestion on those routes. However, the forecast number is 53,300 below predictions and there is currently no toll.

The road is currently going through a toll free promotional period, which is about to end on 17 October, suggesting that with demand now 40% below forecasts that there are parallels with the bankrupt Clem 7 toll tunnel (although clearly nowhere near as bad), although there are expectations of demand ramping up over a 15 month period.

Understandably, Clem 7 has had a small boost in usage (17%) as Airport Link connects well with Clem 7, but is still carrying less than half the forecast volume of traffic.

It's too early to say whether Airport Link will succeed or not, but it has to be said that when a toll road has 40% less trips that forecast - when it is free- it is difficult to be optimistic.

Wednesday, 10 October 2012

According to the Herald Sun, chair of the Australian Competition and Consumer Commission (ACCC), Rod Sims, says that congestion charging, carefully managed, with some money used to support public transport, would make a meaningful impact on congestion and help provide funding to support infrastructure development. He was making this point at a speech at the John Curtin Institute of Public Policy in Western Australia.

The ACCC is Australia's competition and consumer law enforcement body. Although it has no specific role in its area, to have a highly placed officer of this body, responsible for consumer advocacy, raising this point adds to the growing number of views expressed in Australia supporting congestion pricing.

China - government declares certain public holidays to be toll free

China's introduction of toll free public holidays has had a mixed response according to state newspaper Global Times.

The report said:

The State Council approved a plan on August 3 to lift toll fees on passenger cars with no more than seven seats during four national holidays of Spring Festival, Tomb-sweeping Day, Labor Day and National Day.

This year's National Day holiday coincidently comes the day after Mid-Autumn Festival, which is governed by the lunar calendar, creating an eight-day national holiday. The State Council has ordered that passenger cars be allowed to travel free on the country's toll roads from September 30 to October 7.

Given China's toll roads are mostly privately owned, the issue has been whether the law has been consistently followed by the private road owners. People were sceptical that the toll free period would come into effect, and the key reason it was introduced appears to be populism.

The toll free period started at midnight, resulting in large volumes of traffic travelling after that time. It is not entirely clear from the reports, but it appears that few measures were adopted for traffic management at toll plazas, as the tolls still applied to vehicles with more than 7 occupants. So vehicles would queue at toll plazas to be quickly flagged on. One wonders why it would not have been easier to make all vehicles exempt and to have confined the traffic lanes at plazas to a number that avoided the use of plazas to cascade and then merge traffic flows.

This would duplicate Jasa Marga, Indonesia's existing state-owned concessionaire, which reportedly has welcomed the move (presumably because it isn't about competition, but about capacity) and will help the company enter the sector. The report claims that Hutama Kurya will be pursuing new toll roads in Sumatra

Meanwhile, another report notes that Jakarta TollRoad Development, a consortium that includes Hutama Kurya, has raised additional capital from PT Jaya Real Property (JRPT) and PT Jaya Konstruksi Manggala Pratama (JKON), which are part of the Pembangunan Jaya Group, the operator of Ancol Dreamland amusement park in North Jakarta.

One project that the firm plans to bid on is a 67-kilometer-long toll road that will connect all five of Jakarta’s municipalities. Based on previous reports, the project will require a total investment of Rp 40 trillion (US$4.19 billion).

North Carolina looking beyond fuel taxes

Business Journal reports that North Carolina Secretary of Transportation Gene Conti has said that the future of highway funding for the state is likely to be tolls and vehicle mileage tax, rather than fuel tax. A key reason appears to be that the state has one of the highest fuel taxes in the US.

Ontario to help build toll road for access to mining region

In some countries, developers ask the government to pay for and build the roads to gain access to land they want to develop. In Ontario, the provincial government has said it will help do that, but will charge all road users to use it according to Wawatay News Online. The project is intended to be a 300km new road to access an area called the "Ring of Fire" which is rich in mineral deposits. It is not intended to be a public road, but a road purely for shifting cargo and for access to the mining developments, but is intended to be fully self funding by providing access to all of the adjacent mining claims.

South Africa - Cape Town and SANRAL disagree on tolls for new road proposal

IOL news reports on how a proposed new road in Cape Town, the R300, is showing up the split in policy on tolling in the country. On the one hand, the City is promoting the road, but not as a tolled route. The City of Cape Town is against tolling on principle and is seeking a "new model" for funding major road plans. However, national highways company, SANRAL is proposing that it be a toll road. In any case, there isn't funding for the project at present.

Tuesday, 9 October 2012

In August 2012, I wrote that Cardiff City Council, Wales, was investigating whether congestion pricing might have merit for the city, both to reduce congestion, and help fund transport infrastructure including improved public transport. Given that discussion about urban congestion charging in the UK virtually died after the Manchester congestion charge referendum in 2008, it seemed promising that another city was starting to reopen discussion. Councillor Ralph Cook said that officials had been asked to examine the merits of the idea.

However, it wasn't to be. Wales Online now reports that Cardiff City Council "categorically rules out" introducing a congestion charge.

The report says:

having since received a paper form council officers on the controversial proposal, Coun Cook said he had “reached the conclusion that a congestion charge will not be introduced by this administration”

Such a report ought to be interesting.

Politicians are climbing over the issue, with the usually pro-environmentalism Liberal Democrats firmly against the idea. Labour (which leads the Council) simply said it was having an open mind about all of the possible options but had no plans.

I hope to be able to source any publicly available material on this and republish it here, to see what thinking was behind what appears to be a bureaucratic rather than purely political rejection of congestion charging for Cardiff.

Monday, 8 October 2012

The Chicago Tribune writes about a business called Platepass which provides toll collection services primarily to rental car firms, whose customers may not know how to interact with fully electronic free flow toll roads. It has been around since 2006 and is used by Hertz and Advantage rental cars in the USA. A competitor called Highway Toll Administration (since 2002) is used by Avis, Alamo and Enterprise.

The system works by offering rental car customers an option to pay for tolls electronically. It means that no rental car vehicles become violators, but instead Platepass chases up the debt, usually paid through the credit card used for the car hire.

It charges an administration fee of US$2.95 per day for rental car customers, effectively meaning it is only worthwhile if one is using several toll roads per day. The maximum is $14.75 per month, meaning a two month hire could cost $29.50, without actually paying a cent for a toll road.

The idea is to be convenient. However, it appears that some customers are being signed up for the Platepass without being aware of it, and some are paying cash at conventional toll booths and finding out they are being billed twice. Certainly the fee structure makes it more expensive than paying direct, but few users of a rental car know how to contact the toll road company and make a payment by phone. It takes considerable time to work that out.

However, it really ought to be transparent to those renting. Either it is clear that all tolls will be through this system when renting, or those renting can opt to pay direct and face the considerable fines involved if they do not do so (that being the real saving of the administration fee).

It is good to see businesses emerge to deal with this obvious issue, and for them to hopefully extend across lease vehicles or even maybe have consumer products for when people borrow cars off others (perhaps with a smartphone app to activate an account). Yet it is important that people know that it exists and what they face paying.

Meanwhile, this business is undoubtedly quite a lucrative one for those in it.

Thursday, 4 October 2012

Ron Davis at the Huffington Post argues that there is an economic case for congestion pricing, but that the claimed equity concerns can be addressed by simply recycling the revenues. In other words, he sees congestion pricing not as a way of replacing existing motoring taxes or raising new revenue, but that the benefits of congestion reduction (and reduced emissions) in and of themselves make it worthwhile to introduce it on a revenue neutral basis.

He said:

The total annual tolls collected should be equal to highway spending (currently $160 billion). The same sum should be granted to taxpayers, divided equally among them. Any money the government collects from tolls gets taken out of taxes.

Hold on, so if the amount collected should be equal to spending on highways, then why return it to motorists? Doesn't this mean that existing taxes continue to be spent on roads?

Yet there is some sense in what he is arguing.

He says there should be a tax credit to everyone equal to revenue from congestion pricing, to offset the cost, so that those who pay congestion pricing would already have the money and could choose to drive at peak time, or drive at other times (or not drive at all) and keep some of the money.

He suggests US$800 per head be given to everyone, and the congestion reduction benefit from congestion pricing would be enormous:

Congestion pricing would save between $40 billion to $50 billion per year. $40 billion could pay for 100,000 teachers, an aircraft carrier, a 5% corporate tax cut, a $10,000 check to the million poorest Americans and food for over 3 million starving kids in poor countries for a year. All at once. This savings estimate excludes the economic waste from stop and go traffic. If staggered commute times lowered the economic cost of traffic jams from $130 billion per year by just one-third, the combined savings over a decade would be over $800 billion.

In effect, what he is proposing is to recycle congestion pricing as a new tax. However, he isn't explicitly proposing that it replace existing ones, but instead keeping existing taxes to pay for roads, whilst congestion pricing would be simply a tool to reward those who don't drive at peak times, but penalise those who do.

It would work, to reduce congestion, but it would be preferable to replace existing taxes instead. Far better to have motorists pay no additional tax on fuel or vehicle ownership, and then only pay when driving at peak times, rather than keep paying such taxes and then get a refund from a new tax.

Still it is a useful idea. Far too often arguments against congestion pricing are linked to it being a new tax, and to raise additional money to spend on transport projects. This shouldn't be the only use of congestion charging, because the key benefits are in improving the utilisation of the network, reducing delays, reducing emissions, encouraging use of the network at other times and usage of other modes.

It's quite plausible and could be economically efficient to create a congestion charge that simply raises money that is then credited to everyone who drives, although it still raises the question of how efficiently one raises funds to pay for the infrastructure costs in the first place.

Wednesday, 3 October 2012

As it spends down the proceeds from the privatisation of the Indiana toll road, the state is now contemplating how to maintain funding for its highway network. NWI Politics reports that approaches being considered include more toll road projects, using PPPs and a vehicle mileage tax (VMT) to supplement or replace the gasoline tax. Both major candidates for Governor are promising tax reductions, which will not make it easier to increase gasoline tax to pay for roads. One can only hope that the state can pull together a plan that it can sell to voters. Considering a mix of tolls where viable, and a longer term transition to VMT is likely to be following the steps of many others.

Meanwhile, a report from NWI Times notes that 65% of users of the Indiana toll road are out of state, indicating how important the toll really is to ensuring that users of the road pay for it. Motor registration taxes and gas taxes for such vehicles are more likely to be predominantly paid out of state.

New Zealand
Having recently restructured its national distance-weight based road user charging system so that it charges by maximum allowable vehicle weight, not average vehicle loading, New Zealand is finding a few feeling unfairly hit by the changes.

The change made some policy sense in that it meant that there were no longer issues of enforcing vehicles according to actual weight (when this would vary from trip to trip) and vehicle owners would no longer need to buy supplementary road user charges licences for blocks of 1000km for heavier weights. Keeping it at the maximum allowable also incentivises more efficient vehicle usage, but it does mean some lose out - mainly those with larger vehicles which permanently carry much smaller weights. The Timaru Herald reports on Mervyn Tyree, who owns a customised bus converted into a motor home that has a maximum permissible weight of 21 tonnes, even though it only ever weighs 14.7 tonnes. He is facing an increase in road user charges of nearly 100%, even though he isn't actually carrying any more or creating any more damage to the roads.

I did road user charging policy in NZ when it was actual weights, and whilst it was inherently attractive to simplify the system by moving to maximum weights, it was expected to create these sorts of problems and in particular, problems for trucks that would never carry the full load for much of their trips (milk tankers).

The only way this could be avoided is by having a special vehicle category for those which are no longer capable of carrying the full load in ordinary usage. Converting a bus to a motor home effectively does that, because Mervyn probably can't fit enough people in to reach the 21 tonne limit.

Sanef operates the third-largest interconnected toll road network in France. Although the company is exposed to variations in traffic volumes, it benefits from a strong competitive position; favorable concession agreements, including yearly inflation-linked tariff increases; high profitability; and positive free cash flows. We consider the risk of acquisitions and diversification to be low. These strengths are partly offset by Sanef's high indebtedness, and its relatively rigid dividend policy.

The rating is directly related to the rating given to its primary shareholder, Abertis, which is also BBB.

Texas

The Examiner writes a fairly critical article about the forthcoming SH130 toll road in Texas, which is to be the first foreign privately owned toll road in the state. It's not particularly flattering, which is unfortunate, as Texas does sometimes have the image of being a state that believes in a free market approach, but this article gives the impression of an underlying xenophobia around the road being foreign owned, and a belief that fuel taxation is inherently fairer. The article descends into little more than rhetorical polemics with this:

So there can be no doubt that the state is cozying up with big business to incentivize truckers and motorists to use Cintra’s tollway, and effectively grant Cintra a monopoly for the next 50 years through various revenue sharing schemes and other incentives, like slowing free alternatives and ensuring any expansion of I-35 will also be tolled, not free. God help Texas with such sinister agents in charge of transportation. Eventually, you won’t have a choice but to pay.

Lippincott was sure to dodge the glaring hypocrisy of Governor Rick Perry, who is so obviously starving the gas tax in order to hand Texas roads to his corporate buddies. Perry claims to be all about state sovereignty, the primary subject of his latest book, Fed-Up, while selling off Texas to the highest bidder.

Terri Hall, the writer "is the founder of the San Antonio Toll Party and Texans Uniting for Reform and Freedom. She started a taxpayer revolt upon learning of plans to convert Highway 281 into a tollway and charge taxpayers again for what they already built and paid for."

I am curious as to whether Ms Hall actually believes that when you build anything that you don't ever have to pay anything more to ensure that it retains its value. A common mistake in economics that is used too often in arguing against tolls.

Meanwhile, the Wall Street Journal notes that the State of Texas receives $100 million for approving the 85mph speed limit for the toll road, $33 million more than had the concession been for an 80mph speed limit road. Quite simply the concessionaire believes it will get more users at a higher speed, but safety advocates and opponents to privately owned roads believe it is "reckless".

Texas free flow tolling violations

A report in KeraNews indicates that the proportion of users of North Texas Tollway Authority toll roads that violate by not having a toll tag and not paying invoices sent in the post is 1%, and Texas is about to crack down on them. The approach appears to be to treat it as a civil debt, and seek recovery like other debts, but also to treat violators as trespassers by allowing such vehicles to be impounded on the toll roads if stopped. The violator with the highest debt owes $182,000.

Tuesday, 2 October 2012

The province of British Columbia is replacing one of Vancouver's key bridges, the Port Mann Bridge, which carries the Trans-Canada Highway over the Fraser River. The existing five lane bridge (two lanes each way with a HOV lane) is inadequate for the volumes of traffic over it, and the new bridge will have four lanes each way plus one HOV lane each way, and a cycleway. The new bridge is to cost C$2.46 billion (US$2.52 billion). It is being commissioned by the province and will be the world's widest long span bridge. It is expected to save up to an hour a day in travel time for commuters, suggesting existing queues are significant.

Port Mann Bridge, Vancouver

The current bridge is untolled, but the new one will be, with toll rates capped to rise no more than 2.5% per annum or inflation. Tolling will be entirely electronic free flow based, using a sticker based transponder (which is supplied free of charge for those who register) and automatic number plate recognition (ANPR) cameras. Enforcement will include as a last resort, denial of vehicle insurance renewal, and US violators will be pursued through a contractor for debt collection in that country.

The Aldergrove Star reports that the British Columbia government is incentivising early opening of accounts. The bridge opens in December 2012, and for the first three months the toll will be "half price" at C$1.50 (US$1.54) per trip (for cars), but for those registering accounts over that period they will be guaranteed that price for a whole year. It is hard to imagine regular users not wanting such a saving, since after the first three months the price will be C$3 (US$3.12) for those who have not registered.

Light trucks and cars with trailers will pay C$4.50 (US$4.61) for the first three months, then C$6 (US$6.14) if not registered.

Motorcycles will pay C$1 (US$1.02) in the first three months, then C$1.50 (US$1.54) if not registered.

Heavy trucks will not have this discount pay C$9 (US$9.22), but will only pay half price between 9pm and 5am.

Furthermore, registering an account by 30 November 2012 (before the bridge opens) will mean a C$30 (US$30.72) credit in their accounts (20 free crossings).

Another interesting dimension is that HOV lanes will not be free at peak times, but will have a 25% discount for multiple occupancy vehicles. It makes sense to not offer such vehicles free access, but unclear why there needs to be a discount at all.

The argument for the discount is that not all lanes will be open on day one, but it makes a great deal of sense to incentivise the creation of accounts, because it will significantly reduce transaction costs for the toll system. The more users are paying more or less automatically, the less it costs to operate. The goals is to get 80% of users registered.

Those who do not register and do not have an account can either prepay, or postpay within seven days. After that time they face a C$2.30 fee (US$2.36).

Finally, there is an option to buy an unlimited access pass for motorcycles, cars and light trucks (C$50, C$75 and C$225 respectively).

All of this is positive, and shows a degree of commercial nous in encouraging users to adopt the most cost effective (and convenient) options for them. However, what else is interesting is that it has provoked wider discussion about tolls and road pricing in Vancouver.

The same article notes that Langley City Mayor Peter Fassbender says there needs to be a look at road pricing in Vancouver. Surrey Mayor Dianne Watts talked of tolls not be imposed on some roads as a lost opportunity.

Finally Canadian Taxpayers' Federation B.C. director Jordan Bateman said the Port Mann toll discounts make sense to reduce administration costs but he'd also prefer a look at tolling reform.

"We wouldn't be averse to seeing the province head towards a road pricing system," he said.

"Provided it was fair and equitable across the region and only if it's tied to a corresponding decrease in the gas tax."

That in itself, is a big step forward for a taxpayers' lobby group to support road pricing, on condition that it was reducing fuel tax. Surely this gives some scope for British Columbia to think a bit more boldly on road pricing?

Monday, 1 October 2012

Following on from the speeches made by Scott Charlton and others than I reported previously, Australian blogger Alan Davies, on Crikey,
said that Australians should talk about road pricing. He gets the
economics largely right, that peak congestion pricing would mean mode
shift, time shift and consolidation of trips, although he advocates it
as a source of new government revenue, which would be controversial.

Yet the most important point he makes is in rebuttal to claims that congestion charging is an attack on the poor:

The main criticism of road pricing is the claim it’s inequitable. Yes, higher income travellers will be better placed to deal with road pricing, just as they are with all other motoring-related costs.

However that issue has to be balanced against the economic and environmental damage done by excessive car use. There’s also an incorrect and somewhat patronising assumption that lower income travellers don’t make high-value or important trips.

We need to bear in mind that everyone regardless of income currently pays for necessities like food and rent according to the amount they consume. Everyone pays for essential services like water and power irrespective of their income. Everyone who uses public transport pays and the revenue is used to make public transport better.

Indeed, governments (in the developed world) don't deliberately discount the cost of buying cars (unless they are electric), fueling cars or maintaining them to help the poor. The policy response to people on low incomes not being able to afford the market price for goods and services is rarely to subsidise the prices of such goods and services (as the transaction costs are high and the distributional impacts are likely to skew towards those who can afford to pay), but rather to support incomes more generally (with the exception of housing) to allow them to make intelligent trade-offs between goods and services they purchase.

He does suggest discounts to offset the impacts (an idea which is hard to police or effectively target), but there are better ways of doing it, especially if pricing can be more disaggregated by time and location, so that prices are precisely targeted.

Opposition to congestion pricing because it hurts the poor cannot be simply dismissed, but it shouldn't be allowed to dismiss the concept out of hand. Work needs to be done to understand the real distributional impacts of such pricing, particularly if the use of revenue is taken into account and pricing is concentrated on peaks.

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What is road pricing?

Road pricing is any system that directly charges motorists for the use of a road or network of roads. Traditionally it has meant tolls on single routes, particularly crossings such as bridges or tunnels. More recently it also includes area, cordon and zone pricing of urban areas, and distance and time based charging of whole networks. It does not include fuel or tyre taxes, or taxes on ownership or purchase of road vehicles.